Intel leads surprise inventory decline

Chip suppliers cut inventory significantly in the fourth quarter after inventories had reached worrisome levels in the third quarter.

Semiconductor inventories held by chip suppliers fell dramatically in the fourth quarter of 2012, led by big reductions by Intel Corp., according to market research firm IHS iSuppli.

According to IHS, the significant inventory reduction is a welcome sign after inventories reached worrisome heights in the third quarter of last year.

"Semiconductor companies reduced their inventories at a faster-than-expected rate in the fourth quarter as they moved to adjust to weakening demand," said Sharon Stiefel, analyst for semiconductor market intelligence at IHS, in a statement. "Many chip suppliers demonstrated great agility in their reactions to the drop in demand. No. 1 semiconductor supplier Intel Corp. was the most aggressive, cutting its stockpiles by more than half a billion dollars—the largest decrease on a dollar basis of any chipmaker."

Days of inventory (DOI) held by chip suppliers decreased by 5 percent in the fourth quarter compared to the third. IHS's inventory supply report had predicted inventories would decline by 1.5 percent. Inventory value in dollar terms fell almost 5 percent, larger than the originally projected 3 percent, IHS said.

Among the chip suppliers that reduced inventories between the third and fourth quarters, the percentage decrease ranged from 5 to 25 percent, IHS said. As a result, each of these companies shaved $60 million to $600 million worth of inventory off of their stockpile, according to IHS.

Some companies, however, increased inventories over the same period, IHS said. But the increase in inventories at these companies was generally smaller—between $40 million and $250 million.

Intel (Santa Clara, Calif.) decreased its inventory stockpile by $585 million during the fourth quarter, or about 11 percent, IHS said. Intel made aggressive moves to cut stockpiles and reduced production as it migrated to 14-nm process technology, IHS said.

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